Expected sales tax revenue shortfalls in Columbus and Starkville due to the COVID-19 coronavirus pandemic mean both cities might have to look to restructure payments on their tax-increment financing bonds, Golden Triangle Development LINK CEO Joe Max Higgins is suggesting.
But officials in both cities say it’s too early to seriously consider the option, since the severity of the revenue shortfalls remains to be seen.
“We’re still waiting on the March numbers, and then the April numbers will come out in June,” Starkville Mayor Lynn Spruill said, noting that sales tax distributions to cities lag two months behind when they were collected at the point of sale. “We will be looking at every option we can to get us through this for the next 12 to 18 months, because we think that’s probably where the impact will be. … We’re going to be looking at every avenue. There will be no stone unturned, believe me.”
Local governments approve TIF agreements if a development that would be valuable to the community might not be viable without one. TIF bonds only reimburse developers for costs associated with public infrastructure — such as roads, parking lots, sidewalks, storm water mitigation, water and sewer — and do not refund the costs of the actual buildings.
A developer must show at least a year of sales tax performance at the development before a city issues the TIF bonds. Once the bonds are issued, a percentage of the sales tax and of the city and county ad valorem tax generated at the development are used to repay the debt for up to 15 years.
Starkville is currently paying between $165,000 and $175,000 per year in TIF bonds for two developments, and the city will have paid $1.645 million total through 2026. Aldermen have approved four other TIF projects, totaling a maximum of nearly $9 million, for which bonds will be issued at different points over the next few years.
Meanwhile, Columbus is paying off two TIFs that total $3.4 million, the latest of which will be repaid in 2032, according to data the city provided The Dispatch in March in response to a public records request. However, officials did not provide the amount the city pays annually toward those bonds by press time.
Refinancing or restructuring?
Higgins first suggested to the Columbus Rotary Club on Tuesday that cities should consider meeting with banks to restructure their TIF bonds, which are usually bought by local banks.
Restructuring differs from refinancing because the latter involves trading one loan for another loan at a lower interest rate, while the former simply changes when payments are due and for how much. Higgins said restructuring is preferable to refinancing.
“You go to the bank that bought them and say, ‘Hey, we’ve got a problem, a collection issue, and we expect it to correct itself but not in a month or two or three,'” Higgins told The Dispatch on Friday. “It might be as simple as asking the bank to give you some latitude for this payment and add it onto the back of the debt. We can’t tell these governmental entities what to do, (but) we’re looking at things that are economic development-related or that we see having an impact, and we’re just trying to give them a heads up.”
But Jeff Turnage, city attorney for Columbus, said refinancing may be the most available option, though he noted the city should first seek advice from its financial consultant and bond counsel before pursuing either option.
“Something to consider (is) talking to the banks where the bonds were issued about delaying payments, but I don’t know how that would go over,” he said. “The bondholders probably want to receive their return on their investment, so I assume the only realistic option is to refinance.”
Besides restructuring bonds, the city could borrow money from local banks or seek help from the state Legislature, though “none of (these options) are something you want to do,” Spruill said.
Ward 2 Starkville Alderman Sandra Sistrunk, who chairs the board’s finance committee, agreed with Spruill that the city needs to be sure of its financial situation before considering restructuring or other alternative means of meeting the bond payments. Emergency borrowing from the state government is an option, especially in a public health crisis, but Sistrunk said borrowing of any kind should be a last resort.
Columbus ‘looking at really uncertain days’
Columbus borrowed $2.2 million in 2015 for the Moore’s Creek Crossing TIF project — which includes three hotels, a Renasant Bank and the now-closed Logan’s Roadhouse restaurant — and $1.2 million in 2016 for the University Mall Redevelopment TIF project, which brought in DICK’S Sporting Goods and Michael’s arts and crafts store.
That’s a small portion of the roughly $36.4 million in outstanding debt the city carries, which is more than four times than the $8.2 million the city had on the books in 2010. Increasing overall debt coupled with declining operating balances in Fiscal Years 2017 and 2018 led Moody’s to downgrade the city’s credit rating in 2018.
Plus, Columbus, like Starkville, has taken drastic cost-cutting measures — such as cutting employee hours, slashing mayor and council pay and freezing new hires — in anticipation of diminished sales tax revenues during the pandemic.
Still, Ward 3 Councilman Charlie Box said it would be “premature” to consider any alternative payment options on TIFs before the city is certain they are necessary.
“I wouldn’t even want to make a comment on that right now (because) it’s hypothetical, something that might not happen,” Box said. “When you get into a situation like that, everything’s going to be on the table.”
Ward 6 Councilman Bill Gavin agreed with Turnage that the city should seek financial and legal advice on how to pay off the TIF bonds.
“We’re looking at really uncertain days right now,” Gavin said. “All this is something that you can’t shake a crystal ball and get an answer to. You have to live it day by day, and there are things we have to deal with as circumstances arise. … All we can do is rely on our financial people and our good common sense and trust that we’ll make the right decisions.”
The remaining four city council members did not respond to multiple calls and texts from The Dispatch, and Mayor Robert Smith declined to be interviewed.
“At this time the city is monitoring tax revenues and the impact it will have on our budget,” Public Information Officer Joe Dillon said in an email to The Dispatch.
Starkville: Not all approved TIF bonds have been issued
Starkville has approved six TIF projects in the past decade: Academy Sports, Middleton Court, the Cotton Mill Marketplace, the Parker-McGill car dealership, the Mill at MSU and, most recently, a future retail shopping center at Garan Manufacturing’s current location.
Aldermen shot down a TIF request for Walmart Neighborhood Market on Highway 12 North in 2016 on the premise that the corporation could fund its own development, which it subsequently did.
Construction on the new retail center will not begin until Garan relocates to the North Star Industrial Park, so bonds will not be issued on the development for a few years. Of the five completed TIF projects, bonds have only been issued for two of them: Middleton Court and the Cotton Mill Marketplace, Sistrunk said.
Bonds for a portion of the Middleton Court development were issued in 2011 for $510,000. The city pays about $50,000 per year, and the bonds will be paid off in 2025, Sistrunk said. The current amount outstanding is about $259,000.
The Cotton Mill Marketplace bonds were issued in 2016 for $1.135 million, for which the city pays between $115,000 and $125,000 per year, and the bonds will be paid off in 2026, Sistrunk said. The current amount outstanding is about $845,000.
The Mill at MSU is waiting for the Mississippi Development Authority to finalize a Community Development Block Grant for the construction of the parking garage on the project, said Mark Castleberry, the developer behind both The Mill and Moore’s Creek Crossing. This is the only thing left to be done before the city can issue the TIF bonds, he said.
Parker-McGill and Academy Sports have yet to produce a statement from the Mississippi Department of Revenue measuring their sales tax revenue, which the city needs before it issues bonds, Sistrunk said. Lower sales tax revenues mean less money is available for debt service, she said.
“If the majority of revenues meant for reimbursements will be sales taxes, you want to measure it to get the biggest bang for your buck, and doing that during a pandemic isn’t ideal for either side,” Sistrunk said.
She also said that in the future, the city should be aware of how businesses can change over time when considering whether a TIF project is worth the long-term investment.
“Cities should just be cautious to think that over a 15-year period, which is what these TIF bonds usually are, that there will not be some change in a business model, particularly now, when online sales are becoming more prevalent,” Sistrunk said.
Conflict disclosure: Managing Editor Zack Plair took part in editing this article. He is currently involved in legal proceedings with the city of Columbus.
Tess Vrbin was previously a reporter for The Dispatch.